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What Is Voluntary Life Insurance?

Summary

Life insurance is important, but there are many different options—from the structure of the policy to when and how benefits are provided.

  • Learn as much as you can about the different types of life insurance and think carefully about your family’s needs now—and how things might change in the future
  • Understanding life insurance premiums, riders, and benefits are all part of ensuring that you have the right policy to protect your family

It’s always best to expect the unexpected in life. That’s why insurance is such a wise decision.

From car insurance when you get rear-ended by another vehicle to medical insurance for when you get sick and need treatment, insurance makes stressful situations a little less overwhelming — especially financially.

In addition to auto and home insurance, a life insurance policy is something that every person should consider getting. The Coronavirus pandemic served as a reminder that we’re not immortal. With that in mind, we should be responsible for our decisions so that our loved ones are well looked after.

If you are wondering what voluntary life insurance is, there’s no need to stress. Many people have yet to be properly introduced to this important insurance option and how it can benefit your loved ones during tragic times.

While planning ahead for your passing may feel strange, having the right life insurance policy prepares your household for the future. It also helps you establish a legacy that will enrich the lives of the people you care about most.

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Is Life Insurance Necessary?

Life is unpredictable.

To prepare for the unexpected, it’s smart to compare quotes and pick the right life insurance policy for you. If you have any dependents, you will want to ensure that they’re supported financially after you pass on.

That financial support is what life insurance provides. It protects your family from having to take on financial hardships when the unexpected happens. It is hard enough to lose a loved one at any age, but to then have the financial hardship as well can be a lot to take at such a challenging time.

Life Insurance Plan Options

There are two different types of life insurance to consider.

Below is a quick rundown of the benefits of each:

What Is Permanent Life Insurance?

First, let’s talk about permanent life insurance.

This type of life insurance provides coverage for a lifetime, resulting in guaranteed death benefits.

Here are some key aspects of permanent  life insurance to know:

1. The coverage is permanent. You have some flexibility with payment timings. For example, you could set it up so that you only pay 20 times. Or, you could only pay up until you are 65. With permanent life insurance, the higher the death benefits, the more expensive the premium can be, depending on your health rating and age.

2. You may need a medical exam to qualify. Before confirming your eligibility for voluntary life insurance, you may need to undergo a basic health exam. This exam evaluates your current health status, future health risks, and estimates your life expectancy. The results will dictate the health class, which impacts the premium payment recommended for your desired benefits. Not everyone is required to get an exam. 

What Is Term Life Insurance?

The other option to consider is getting a term life insurance policy.

This means you will make payments and receive guaranteed death benefits during a fixed period of time.

Here are the main things to know about this plan:

  1. You can get a level premium for the set years of coverage. Depending on your age you can get up to 35 years of a term policy.
  2. You can convert the policy. This means that you may have the option to change the policy from term to permanent.   
  3. Terms are flexible. The terms of the coverage can vary from being just one year to a few decades. In general, the younger and healthier you are, the lower your premium will be.

Other Life Insurance Options

No one situation is the same, and there are many different forms of life insurance for you to choose from. 

After talking to an agent, you may also realize that a more permanent form of life insurance makes sense for you and your situation.

Here are some of the different permanent life insurance policies to consider:

1. Whole Life Insurance

This is the most popular type of permanent insurance. You can have cash value accrue over time, level premiums and guaranteed minimum death benefit. 

2. Universal Life Insurance

Universal Life Insurance is one of the most flexible permanent options. 

With this type of life insurance, you can have the policy for your whole life but change your premium payments at any point. You can also make changes to the death benefit.  Some policies offer a cash value component as well. Your policy can also go up in terms of value based on how your insurance company invests. However, investment changes could also decrease the value if the market index decreases.

3. Variable Life Insurance

Variable life insurance plans offer family death benefits, but they also create a savings account that is then invested to further mature the funds. While there is always a level of risk associated with investing in stocks and bonds, there are often guarantees that the account will never go below a certain threshold.

4. Final Expense Insurance

With death comes funerals, and funerals can be expensive. If you’re concerned about the costs associated with your passing, this is an option worth considering. Most policies for FE are about 30K or less in coverage. 

You do not want your family and loved ones to bear the burden of paying for your funeral. Instead, you can get a policy for this scenario ensures you’ll have a funeral without financially stressing others.

How To Know How Much Life Insurance You Need

So, how do you know how much life insurance you need? 

Trying to figure out the real costs and predict what your family will need when you are gone can be confusing.

These three simple tricks can help you confidently estimate your life insurance costs: 

Tip #1: Multiply Your Income by Ten

This is one of the simplest tricks in the book: Just multiply your gross yearly income by ten. 

This will generally be a suitable amount to assist your family if you should pass unexpectedly.

Tip #2: Value Each Child

If you are a parent, you will want to also calculate how much money each of your children will need, not just for essentials but for their future education and daily care as well. 

Once you multiply your gross income by ten, you will want to add on an additional $100,000 for every child you have.

Tip #3: Consider Your Debt

You also do not want to leave your family with your personal debt. That’s why you should equally evaluate the cost of your mortgage and any debt you have. Knowing these numbers will allow you to accurately calculate the total life insurance benefits you need your family to have.

How Are Life Insurance Premiums Calculated?

Just like any other insurance policy, there are many different factors that are considered when creating your life insurance premium.

The three main assessments used to calculate life insurance premiums are:

1. The Desired Death Benefits

Before getting a life insurance policy, you’ll probably have a rough estimate of how much money you want to leave behind to keep your loved ones financially secure. The more money you want them to have, the more your premium may be.

2. Your Age and Health

While no one can predict death, a factor that is often considered in your premium costs is your age. 

In general, the older you are, the higher your premium is going to be, simply based on the reality that no one lives forever. It’s likely that your lifestyle will also be taken into account, including factors like your medical background, family history and your daily habits.

3. Pre-Existing Medical Conditions

This one is very similar to general health insurance policies. 

If you have a pre-existing medical condition, the risk of coverage is going to be higher. However, if you also have a pre-existing medical condition, you will certainly want to have a life insurance plan, as the risk of a medical incident is naturally higher.

What If You Outlive a Policy?

If you happen to live past the limit of your term life insurance policy, it’s an ideal time to re-assess the level of coverage you need.

For example, suppose you took out the life insurance policy when you still had kids living at home and a mortgage to pay off. 30 years later, you’re still healthy, and your financial situation is entirely different.

This is good news — it means that the level of coverage and the type of premiums you need to pay will change. The real trick in this scenario is to talk to a life insurance agent before your policy expires or compare life insurance quotes online. That way, you can ensure the transition for the new adjustments is seamless and accurate. 

Life Insurance Riders

Just like every other insurance policy, life insurance offers additional add-ons that further support your benefits. These are referred to as “riders.”

Riders can be customized to ensure that your family is protected after your passing.

One of the most common types of riders is an accelerated death benefit. This rider guarantees your family will receive a part of your death benefit, even when you are alive but dealing with a critical injury, chronic or terminal illness. (Some policies will include this for no extra charge) 

Another add-on that families often consider is a child term rider. This rider allows your children to be added to your policy. If they pass, any of the death-related expenses will be covered.

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The Bottom Line

When getting your life insurance policy set up, it is essential to know that the more information you provide, the better the benefits will be for your loved ones.

Life insurance is a vital level of financial protection that every family should have. That way, if the unexpected happens, the world keeps spinning.

While it can be sad to prepare for your own death, remember that it is something we are all going to face one day. Why not take control of the situation while you can and ensure that your loved ones will have the financial security they need when you are no longer with them?

Talk to your agent or compare quotes instantly with Guaranteed Rate Insurance’s online life insurance quoting platform to get started comparing quotes today. 

Sources:

More Young Adults Are Buying Life Insurance Thanks to the Pandemic—if They Can Get It | WSJ

Term Life Insurance Definition | Investopedia 

Preexisting Condition Definition | Investopedia

Disclaimer: 

*Savings, if any, vary based on the consumer’s profile and other factors. Contact your insurance agent for more information. Restrictions apply.

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